Noonan denies reneging on election debt promise
Finance Minister Michael Noonan has denied reneging on election commitments to force major European bank lenders to take a hit on debt.
The Government is pumping another €24bn into the banks to keep them afloat but without burning senior bondholders.
Mr Noonan said that while they always wanted burden-sharing, they would only do it in consultation with the European Central Bank, which has ruled it out.
"We haven't broken our word," Mr Noonan said.
"We always said in the election that anything we did was under the umbrella of the European agencies and in consultation with the Central Bank in Frankfurt."
Detailing the massive cash injection - the fifth attempt to recapitalise the banks - Mr Noonan signalled junior bond holders who invested in Irish banks should be hit for €5bn to €6bn in plans to finance the restructuring.
But he said Europe was unwilling to budge on senior bond holders - lenders at the top of the repayment queue when a bank fails.
The Finance Minister told RTE that the debate on burden sharing for senior bondholders at Allied Irish Banks and Bank of Ireland was now over.
"We always said we wanted burden sharing. But we would not do it unilaterally," Mr Noonan said.
"We would only do it with the agreement of Frankfurt and we didn't get the agreement."
Mr Noonan said targeting major European lenders could damage the banks' ability to tap into much needed cash down the road, claiming AIB and Bank of Ireland would now become the "lifeblood of a new economy".
"It would inhibit their capacity to get funds in the market in two and a half, three years time, if the people they are going to be seeking the funds from have shared in the burden, by burning the bondholders to use the expression," Mr Noonan said.
The massive €24bn cash injection is designed to win back confidence from international money markets who have been nervous about funding Irish financial institutions.
With the lion's share of the latest multi-billion euro bailout coming from taxpayers, most of Ireland's banking system will effectively be brought under State control.
The promised final bill for the banking clean up - €70bn - is half the value of the entire Irish economy.
The new coalition Government said it will vastly shrink the banking system from six homegrown lenders to two main "pillar" banks.
In a wave of tightly choreographed statements yesterday, Central Bank governor Patrick Honohan disclosed the amounts needed to safely buffer four banks against further shocks after long-awaited stress tests on the institutions.
Allied Irish Bank (AIB) needs €13.3bn, Bank of Ireland needs €5.2bn, building society EBS requires €1.5bn and Irish Life and Permanent needs another €4bn, he announced.
Allied Irish Bank, once the country's largest bank, will merge with EBS to form the second main financial institution.
The plan will also see Irish Life & Permanent forced to sell off its lucrative pensions division Irish Life.
Shares in Bank of Ireland surged more than 20pc when trading began today, but Irish Life & Permanent stocks slumped more than 50pc while AIB also fell.
While senior bondholders at AIB and Bank of Ireland are not being touched, Mr Noonan has said there is merit in forcing bondholders at Anglo Irish Bank to share the burden on the huge losses.
Mr Noonan said Ireland had lost credibility across Europe but denied the country was being treated badly at EU level.
He claimed the banks had to be loaded with capital to restore that credibility.
"The European Central Bank is our central bank, but we have to negotiate every step of the way. We don't get everything," Mr Noonan said.
"But it would be unfair to say they're treating us badly. They're actually treating us very well.
"The biggest problem I had going out there was we have very little credibility in Brussels and across Europe.
"The policy makers do not believe Irish statistics, they do not believe Irish claims because there were too many claims in the past that didn't turn out."
Taoiseach Enda Kenny has said the results of the stress tests would now bring clarity and purpose to the Government's negotiations to ease the terms of the EU/IMF bailout.
Mr Kenny promised a "diplomatic onslaught" across Europe to renew connections.